indian accounting standard 32 financial instruments

INDIAN ACCOUNTING STANDARD 32

FINANCIAL INSTRUMENTS: PRESENTATION

CONTENTS

from paragraph

OBJECTIVE 1

SCOPE 4

DEFINITIONS (SEE ALSO PARAGRAPHS AG3–AG23) 11

PRESENTATION 15

Liabilities and equity (see also paragraphs AG13–AG14J and AG25–AG29A) 15

Compound financial instruments (see also paragraphs AG30–AG35) 28

Treasury shares (see also paragraph AG36) 33

Interest, dividends, losses and gains (see also paragraph AG37)

35

Offsetting a financial asset and a financial liability (see also paragraphs AG38A–AG38F and AG39) 42

EFFECTIVE DATE AND TRANSITION 96

APPENDICES

Appendix A- Application Guidance Ind AS 32 Financial Instruments: Presentation

Appendix B- References to matters contained in other Indian Accounting Standards

Appendix 1- Comparison with IAS 32, Financial Instruments: Presentation

Ind AS 32, Financial Instruments: Presentation

Indian Accounting Standard (Ind AS) 32

Financial Instruments: Presentation# (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.)

Objective

1 [Refer Appendix 1]

2 The objective of this Standard is to establish principles for

presenting financial instruments as liabilities or equity and for

offsetting financial assets and financial liabilities. It applies to the

classification of financial instruments, from the perspective of the

issuer, into financial assets, financial liabilities and equity

instruments; the classification of related interest, dividends,

losses and gains; and the circumstances in which financial

assets and financial liabilities should be offset.

3 The principles in this Standard complement the principles for

recognising and measuring financial assets and financial

liabilities in Ind AS 109, Financial Instruments, and for disclosing

information about them in Ind AS 107, Financial Instruments:

Disclosures.

Scope

4 This Standard shall be applied by all entities to all types of

financial instruments except:

(a) those interests in subsidiaries, associates or joint ventures

that are accounted for in accordance with Ind AS 110,

Consolidated Financial Statements, Ind AS 27, Separate

Financial Statements, or Ind AS 28, Investments in

Associates and joint ventures. However, in some cases, Ind

AS 110, Ind AS 27 or Ind AS 28 require or permit an entity to

account for an interest in a subsidiary, associate or joint

# This Ind AS was notified vide G.S.R. 111(E) dated 16th February, 2015 and was

amended vide Notification No. G.S.R. 365(E) dated 30th March, 2016, G.S.R. 310(E) dated 28th March, 2018 and G.S.R. 273(E) dated 30th March, 2019.


venture using Ind AS 109; in those cases, entities shall

apply the requirements of this Standard. Entities shall also

apply this Standard to all derivatives linked to interests in

subsidiaries, associates or joint ventures.

(b) employers’ rights and obligations under employee benefit

plans, to which Ind AS 19, Employee Benefits, applies.

(c) [Refer Appendix 1]

(d) insurance contracts as defined in Ind AS 104, Insurance

Contracts. However, this Standard applies to derivatives

that are embedded in insurance contracts if Ind AS 109

requires the entity to account for them separately.

Moreover, an issuer shall apply this Standard to financial

guarantee contracts if the issuer applies Ind AS 109 in

recognising and measuring the contracts, but shall apply

Ind AS 104 if the issuer elects, in accordance with

paragraph 4(d) of Ind AS 104, to apply Ind AS 104 in

recognising and measuring them.

(e) financial instruments that are within the scope of Ind AS

104 because they contain a discretionary participation

feature. The issuer of these instruments is exempt from

applying to these features paragraphs 15–32 and AG25–

AG35 of this Standard regarding the distinction between

financial liabilities and equity instruments. However, these

instruments are subject to all other requirements of this

Standard. Furthermore, this Standard applies to derivatives

that are embedded in these instruments (see Ind AS 109).

(f) financial instruments, contracts and obligations under

share-based payment transactions to which Ind AS 102,

Share-based Payment, applies, except for

(i) contracts within the scope of paragraphs 8–10 of this

Standard, to which this Standard applies,

(ii) paragraphs 33 and 34 of this Standard, which shall be

applied to treasury shares purchased, sold, issued or

cancelled in connection with employee share option

plans, employee share purchase plans, and all other

share-based payment arrangements.


5- 7 [Refer Appendix 1]

8 This Standard shall be applied to those contracts to buy or sell a

non-financial item that can be settled net in cash or another

financial instrument, or by exchanging financial instruments, as if

the contracts were financial instruments, with the exception of

contracts that were entered into and continue to be held for the

purpose of the receipt or delivery of a non-financial item in

accordance with the entity’s expected purchase, sale or usage

requirements. However, this Standard shall be applied to those

contracts that an entity designates as measured at fair value

through profit or loss in accordance with paragraph 2.5 of Ind AS

109, Financial Instruments.

9 There are various ways in which a contract to buy or sell a non-

financial item can be settled net in cash or another financial instrument

or by exchanging financial instruments. These include:

(a) when the terms of the contract permit either party to settle it net

in cash or another financial instrument or by exchanging

financial instruments;

(b) when the ability to settle net in cash or another financial

instrument, or by exchanging financial instruments, is not

explicit in the terms of the contract, but the entity has a practice

of settling similar contracts net in cash or another financial

instrument, or by exchanging financial instruments (whether with

the counterparty, by entering into offsetting contracts or by

selling the contract before its exercise or lapse);

(c) when, for similar contracts, the entity has a practice of taking

delivery of the underlying and selling it within a short period

after delivery for the purpose of generating a profit from short-

term fluctuations in price or dealer’s margin; and

(d) when the non-financial item that is the subject of the contract is

readily convertible to cash.

A contract to which (b) or (c) applies is not entered into for the purpose

of the receipt or delivery of the non-financial item in accordance with

the entity’s expected purchase, sale or usage requirements, and,

accordingly, is within the scope of this Standard. Other contracts to

which paragraph 8 applies are evaluated to determine whether they


were entered into and continue to be held for the purpose of the

receipt or delivery of the non-financial item in accordance with the

entity’s expected purchase, sale or usage requirement, and

accordingly, whether they are within the scope of this Standard.

10 A written option to buy or sell a non-financial item that can be settled

net in cash or another financial instrument, or by exchanging financial

instruments, in accordance with paragraph 9(a) or (d) is within the

scope of this Standard. Such a contract cannot be entered into for the

purpose of the receipt or delivery of the non-financial item in

accordance with the entity’s expected purchase, sale or usage

requirements.

Definitions (see also paragraphs AG3–AG23)

11 The following terms are used in this Standard with the meanings

specified:

A financial instrument is any contract that gives rise to a financial

asset of one entity and a financial liability or equity instrument of

another entity.

A financial asset is any asset that is:

(a) cash;

(b) an equity instrument of another entity;

(c) a contractual right:

(i) to receive cash or another financial asset from

another entity; or

(ii) to exchange financial assets or financial liabilities

with another entity under conditions that are

potentially favourable to the entity; or

(d) a contract that will or may be settled in the entity’s own

equity instruments and is:

(i) a non-derivative for which the entity is or may be

obliged to receive a variable number of the entity’s

own equity instruments; or

(ii) a derivative that will or may be settled other than by

the exchange of a fixed amount of cash or another


financial asset for a fixed number of the entity’s own

equity instruments. For this purpose the entity’s own

equity instruments do not include puttable financial

instruments classified as equity instruments in

accordance with paragraphs 16A and 16B,

instruments that impose on the entity an obligation to

deliver to another party a pro rata share of the net

assets of the entity only on liquidation and are

classified as equity instruments in accordance with

paragraphs 16C and 16D, or instruments that are

contracts for the future receipt or delivery of the

entity’s own equity instruments.

A financial liability is any liability that is:

(a) a contractual obligation :

(i) to deliver cash or another financial asset to another

entity; or

(ii) to exchange financial assets or financial liabilities

with another entity under conditions that are

potentially unfavourable to the entity; or

(b) a contract that will or may be settled in the entity’s own

equity instruments and is:

(i) a non-derivative for which the entity is or may be

obliged to deliver a variable number of the entity’s

own equity instruments; or

(ii) a derivative that will or may be settled other than by

the exchange of a fixed amount of cash or another

financial asset for a fixed number of the entity’s own

equity instruments. For this purpose, rights, options

or warrants to acquire a fixed number of the entity’s

own equity instruments for a fixed amount of any

currency are equity instruments if the entity offers the

rights, options or warrants pro rata to all of its

existing owners of the same class of its own non-

derivative equity instruments. Apart from the

aforesaid, the equity conversion option embedded in

a convertible bond denominated in foreign currency


to acquire a fixed number of the entity’s own equity

instruments is an equity instrument if the exercise

price is fixed in any currency. Also, for these

purposes the entity’s own equity instruments do not

include puttable financial instruments that are

classified as equity instruments in accordance with

paragraphs 16A and 16B, instruments that impose on

the entity an obligation to deliver to another party a

pro rata share of the net assets of the entity only on

liquidation and are classified as equity instruments in

accordance with paragraphs 16C and 16D, or

instruments that are contracts for the future receipt

or delivery of the entity’s own equity instruments.

As an exception, an instrument that meets the definition of a

financial liability is classified as an equity instrument if it has all

the features and meets the conditions in paragraphs 16A and 16B

or paragraphs 16C and 16D.

An equity instrument is any contract that evidences a residual

interest in the assets of an entity after deducting all of its

liabilities.

Fair value is the price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between

market participants at the measurement date. (See Ind AS 113,

Fair Value Measurement.)

A puttable instrument is a financial instrument that gives the

holder the right to put the instrument back to the issuer for cash

or another financial asset or is automatically put back to the

issuer on the occurrence of an uncertain future event or the death

or retirement of the instrument holder.

12 The following terms are defined in Appendix A of Ind AS 109 and are

used in this Standard with the meaning specified in Ind AS 109.

• amortised cost of a financial asset or financial liability

• derecognition

• derivative

• effective interest method

http://eifrs.iasb.org/eifrs/stdcontent/2009_Bound_Volume/IAS39a_2005-08-18_en-3.html#SL134592


• financial guarantee contract

• financial liability at fair value through profit or loss

• firm commitment

• forecast transaction

• hedge effectiveness

• hedged item

• hedging instrument

• held for trading

• regular way purchase or sale

• transaction costs.

13 In this Standard, ‘contract’ and ‘contractual’ refer to an agreement

between two or more parties that has clear economic consequences

that the parties have little, if any, discretion to avoid, usually because

the agreement is enforceable by law. Contracts, and thus financial

instruments, may take a variety of forms and need not be in writing.

14 In this Standard, ‘entity’ includes individuals, partnerships,

incorporated bodies, trusts and government agencies.

Presentation

Liabilities and equity (see also paragraphs AG13–AG14J and AG25–AG29A)

15 The issuer of a financial instrument shall classify the instrument,

or its component parts, on initial recognition as a financial

liability, a financial asset or an equity instrument in accordance

with the substance of the contractual arrangement and the

definitions of a financial liability, a financial asset and an equity

instrument.

16 When an issuer applies the definitions in paragraph 11 to determine

whether a financial instrument is an equity instrument rather than a

financial liability, the instrument is an equity instrument if, and only if,

both conditions (a) and (b) below are met.

(a) The instrument includes no contractual obligation:


(i) to deliver cash or another financial asset to another

entity; or

(ii) to exchange financial assets or financial liabilities with

another entity under conditions that are potentially

unfavourable to the issuer.

(b) If the instrument will or may be settled in the issuer’s own equity

instruments, it is:

(i) a non-derivative that includes no contractual obligation for

the issuer to deliver a variable number of its own equity

instruments; or

(ii) a derivative that will be settled only by the issuer

exchanging a fixed amount of cash or another financial

asset for a fixed number of its own equity instruments.

For this purpose, rights, options or warrants to acquire a

fixed number of the entity’s own equity instruments for a

fixed amount of any currency are equity instruments if the

entity offers the rights, options or warrants pro rata to al l

of its existing owners of the same class of its own non-

derivative equity instruments. Apart from the aforesaid,

the equity conversion option embedded in a convertible

bond denominated in foreign currency to acquire a fixed

number of the entity’s own equity instruments is an equity

instrument if the exercise price is fixed in any currency.

Also, for these purposes the issuer’s own equity

instruments do not include instruments that have all the

features and meet the conditions described in paragraphs

16A and 16B or paragraphs 16C and 16D, or instruments

that are contracts for the future receipt or delivery of the

issuer’s own equity instruments.

A contractual obligation, including one arising from a derivative

financial instrument, that will or may result in the future receipt or

delivery of the issuer’s own equity instruments, but does not meet

conditions (a) and (b) above, is not an equity instrument. As an

exception, an instrument that meets the definition of a financial liability

is classified as an equity instrument if it has all the features and meets

the conditions in paragraphs 16A and 16B or paragraphs 16C and

16D.


Puttable instruments

16A A puttable financial instrument includes a contractual obligation for the

issuer to repurchase or redeem that instrument for cash or another

financial asset on exercise of the put. As an exception to the definition

of a financial liability, an instrument that includes such an obligation is

classified as an equity instrument if it has all the following features:

(a) It entitles the holder to a pro rata share of the entity’s net assets

in the event of the entity’s liquidation. The entity’s net assets are

those assets that remain after deducting all other claims on its

assets. A pro rata share is determined by:

(i) dividing the entity’s net assets on liquidation into units of

equal amount; and

(ii) multiplying that amount by the number of the units held by

the financial instrument holder.

(b) The instrument is in the class of instruments that is subordinate

to all other classes of instruments. To be in such a class the

instrument:

(i) has no priority over other claims to the assets of the entity

on liquidation, and

(ii) does not need to be converted into another instrument

before it is in the class of instruments that is subordinate

to all other classes of instruments.

(c) All financial instruments in the class of instruments that is

subordinate to all other classes of instruments have identical

features. For example, they must all be puttable, and the

formula or other method used to calculate the repurchase or

redemption price is the same for all instruments in that class.

(d) Apart from the contractual obligation for the issuer to

repurchase or redeem the instrument for cash or another

financial asset, the instrument does not include any contractual

obligation to deliver cash or another financial asset to another

entity, or to exchange financial assets or financial liabilities with

another entity under conditions that are potentially unfavourable

to the entity, and it is not a contract that will or may be settled in

the entity’s own equity instruments as set out in subparagraph

(b) of the definition of a financial liability.


(e) The total expected cash flows attributable to the instrument over

the life of the instrument are based substantially on the profit or

loss, the change in the recognised net assets or the change in

the fair value of the recognised and unrecognised net assets of

the entity over the life of the instrument (excluding any effects of

the instrument).

16B For an instrument to be classified as an equity instrument, in addition

to the instrument having all the above features, the issuer must have

no other financial instrument or contract that has:

(a) total cash flows based substantially on the profit or loss, the

change in the recognised net assets or the change in the fair

value of the recognised and unrecognised net assets of the

entity (excluding any effects of such instrument or contract) and

(b) the effect of substantially restricting or fixing the residual return

to the puttable instrument holders.

For the purposes of applying this condition, the entity shall not

consider non-financial contracts with a holder of an instrument

described in paragraph 16A that have contractual terms and conditions

that are similar to the contractual terms and conditions of an

equivalent contract that might occur between a non-instrument holder

and the issuing entity. If the entity cannot determine that this condition

is met, it shall not classify the puttable instrument as an equity

instrument.

Instruments, or components of instruments, that impose on the

entity an obligation to deliver to another party a pro rata share of

the net assets of the entity only on liquidation

16C Some financial instruments include a contractual obligation for the

issuing entity to deliver to another entity a pro rata share of its net

assets only on liquidation. The obligation arises because liquidation

either is certain to occur and outside the control of the entity (for

example, a limited life entity) or is uncertain to occur but is at the

option of the instrument holder. As an exception to the definition of a

financial liability, an instrument that includes such an obligation is

classified as an equity instrument if it has all the following features:

(a) It entitles the holder to a pro rata share of the entity’s net assets

in the event of the entity’s liquidation. The entity’s net assets are


those assets that remain after deducting all other claims on its

assets. A pro rata share is determined by:

(i) dividing the net assets of the entity on liquidation into

units of equal amount; and

(ii) multiplying that amount by the number of the units held by

the financial instrument holder.

(b) The instrument is in the class of instruments that is subordinate

to all other classes of instruments. To be in such a class the

instrument:

(i) has no priority over other claims to the assets of the entity

on liquidation, and

(ii) does not need to be converted into another instrument

before it is in the class of instruments that is subordinate

to all other classes of instruments.

(c) All financial instruments in the class of instruments that is

subordinate to all other classes of instruments must have an

identical contractual obligation for the issuing entity to deliver a

pro rata share of its net assets on liquidation.

16D For an instrument to be classified as an equity instrument, in addition

to the instrument having all the above features, the issuer must have

no other financial instrument or contract that has:

(a) total cash flows based substantially on the profit or loss, the

change in the recognised net assets or the change in the fair

value of the recognised and unrecognised net assets of the

entity (excluding any effects of such instrument or contract) and

(b) the effect of substantially restricting or fixing the residual return

to the instrument holders.

For the purposes of applying this condition, the entity shall not

consider non-financial contracts with a holder of an instrument

described in paragraph 16C that have contractual terms and

conditions that are similar to the contractual terms and conditions of an

equivalent contract that might occur between a non-instrument holder

and the issuing entity. If the entity cannot determine that this condition

is met, it shall not classify the instrument as an equity instrument.


Reclassification of puttable instruments and instruments that

impose on the entity an obligation to deliver to another party a

pro rata share of the net assets of the entity only on liquidation

16E An entity shall classify a financial instrument as an equity instrument in

accordance with paragraphs 16A and 16B or paragraphs 16C and 16D

from the date when the instrument has all the features and meets the

conditions set out in those paragraphs. An entity shall reclassify a

financial instrument from the date when the instrument ceases to have

all the features or meet all the conditions set out in those paragraphs.

For example, if an entity redeems all its issued non-puttable

instruments and any puttable instruments that remain outstanding

have all the features and meet all the conditions in paragraphs 16A

and 16B, the entity shall reclassify the puttable instruments as equity

instruments from the date when it redeems the non-puttable

instruments.

16F An entity shall account as follows for the reclassification of an

instrument in accordance with paragraph 16E:

(a) It shall reclassify an equity instrument as a financial liability from

the date when the instrument ceases to have all the features or

meet the conditions in paragraphs 16A and 16B or paragraphs

16C and 16D. The financial liability shall be measured at the

instrument’s fair value at the date of reclassification. The entity

shall recognise in equity any difference between the carrying

value of the equity instrument and the fair value of the financial

liability at the date of reclassification.

(b) It shall reclassify a financial liability as equity from the date

when the instrument has all the features and meets the

conditions set out in paragraphs 16A and 16B or paragraphs

16C and 16D. An equity instrument shall be measured at the

carrying value of the financial liability at the date of

reclassification.

No contractual obligation to deliver cash or another financial

asset (paragraph 16(a))

17 With the exception of the circumstances described in paragraphs 16A

and 16B or paragraphs 16C and 16D, a critical feature in

differentiating a financial liability from an equity instrument is the

existence of a contractual obligation of one party to the f inancial


instrument (the issuer) either to deliver cash or another financial asset

to the other party (the holder) or to exchange financial assets or

financial liabilities with the holder under conditions that are potentially

unfavourable to the issuer. Although the holder of an equity instrument

may be entitled to receive a pro rata share of any dividends or other

distributions of equity, the issuer does not have a contractual

obligation to make such distributions because it cannot be required to

deliver cash or another financial asset to another party.

18 The substance of a financial instrument, rather than its legal form,

governs its classification in the entity’s balance sheet. Substance and

legal form are commonly consistent, but not always. Some financial

instruments take the legal form of equity but are liabilit ies in substance

and others may combine features associated with equity instruments

and features associated with financial liabilities. For example:

(a) a preference share that provides for mandatory redemption by

the issuer for a fixed or determinable amount at a fixed or

determinable future date, or gives the holder the right to require

the issuer to redeem the instrument at or after a particular date

for a fixed or determinable amount, is a financial liability.

(b) a financial instrument that gives the holder the right to put it

back to the issuer for cash or another financial asset (a ‘puttable

instrument’) is a financial liability, except for those instruments

classified as equity instruments in accordance with paragraphs

16A and 16B or paragraphs 16C and 16D. The financial

instrument is a financial liability even when the amount of cash

or other financial assets is determined on the basis of an index

or other item that has the potential to increase or decrease. The

existence of an option for the holder to put the instrument back

to the issuer for cash or another financial asset means that the

puttable instrument meets the definition of a financial liability,

except for those instruments classified as equity instruments in

accordance with paragraphs 16A and 16B or paragraphs 16C

and 16D. For example, open-ended mutual funds, unit trusts,

partnerships and some co-operative entities may provide their

unitholders or members with a right to redeem their interests in

the issuer at any time for cash, which resu lts in the unitholders’

or members’ interests being classified as financial liabilities,

except for those instruments classified as equity instruments in


accordance with paragraphs 16A and 16B or paragraphs 16C

and 16D. However, classification as a financial liability does not

preclude the use of descriptors such as ‘net asset value

attributable to unitholders’ and ‘change in net asset value

attributable to unitholders’ in the financial statements of an

entity that has no contributed equity (such as some mutual

funds and unit trusts) or the use of additional disclosure to show

that total members’ interests comprise items such as reserves

that meet the definition of equity and puttable instruments that

do not.

19 If an entity does not have an unconditional right to avoid delivering

cash or another financial asset to settle a contractual obligation, the

obligation meets the definition of a financial liability, except for those

instruments classified as equity instruments in accordance with

paragraphs 16A and 16B or paragraphs 16C and 16D. For example:

(a) a restriction on the ability of an entity to satisfy a contractual

obligation, such as lack of access to foreign currency or the

need to obtain approval for payment from a regulatory authority,

does not negate the entity’s contractual obligation or the

holder’s contractual right under the instrument.

(b) a contractual obligation that is conditional on a counterparty

exercising its right to redeem is a financial liability because the

entity does not have the unconditional right to avoid delivering

cash or another financial asset.

20 A financial instrument that does not explicitly establish a contractual

obligation to deliver cash or another financial asset may establish an

obligation indirectly through its terms and conditions. For example:

(a) a financial instrument may contain a non-financial obligation that

must be settled if, and only if, the entity fails to make

distributions or to redeem the instrument. If the entity can avoid

a transfer of cash or another financial asset only by settling the

non-financial obligation, the financial instrument is a financial

liability.

(b) a financial instrument is a financial liability if it provides that on

settlement the entity will deliver either:

(i) cash or another financial asset; or


(ii) its own shares whose value is determined to exceed

substantially the value of the cash or other financial

asset.

Although the entity does not have an explicit contractual obligation to

deliver cash or another financial asset, the value of the share

settlement alternative is such that the entity will settle in cash. In any

event, the holder has in substance been guaranteed receipt of an

amount that is at least equal to the cash settlement option (see

paragraph 21).

Settlement in the entity’s own equity instruments (paragraph

16(b))

21 A contract is not an equity instrument solely because it may result in

the receipt or delivery of the entity’s own equity instruments. An entity

may have a contractual right or obligation to receive or deliver a

number of its own shares or other equity instruments that varies so

that the fair value of the entity’s own equity instruments to be received

or delivered equals the amount of the contractual right or obligation.

Such a contractual right or obligation may be for a fixed amount or an

amount that fluctuates in part or in full in response to changes in a

variable other than the market price of the entity’s own equity

instruments (eg an interest rate, a commodity price or a financial

instrument price). Two examples are (a) a contract to deliver as many

of the entity’s own equity instruments as are equal in value to Rs.

100, and (b) a contract to deliver as many of the entity’s own equity

instruments as are equal in value to the value of 100 ounces of gold.

Such a contract is a financial liability of the entity even though the

entity must or can settle it by delivering its own equity instruments. It is

not an equity instrument because the entity uses a variable number of

its own equity instruments as a means to settle the contract.

Accordingly, the contract does not evidence a residual interest in the

entity’s assets after deducting all of its liabilities.

22 Except as stated in paragraph 22A, a contract that will be settled by

the entity (receiving or) delivering a fixed number of its own equity

instruments in exchange for a fixed amount of cash or another

financial asset is an equity instrument. For example, an issued share

option that gives the counterparty a right to buy a fixed number of the

entity’s shares for a fixed price or for a fixed stated principal amount of

a bond is an equity instrument. Changes in the fair value of a contract


arising from variations in market interest rates that do not affect the

amount of cash or other financial assets to be paid or received, or the

number of equity instruments to be received or delivered,

on settlement of the contract do not preclude the contract from being

an equity instrument. Any consideration received (such as the

premium received for a written option or warrant on the entity’s own

shares) is added directly to equity. Any consideration paid (such as the

premium paid for a purchased option) is deducted directly from equity.

Changes in the fair value of an equity instrument are not recognised in

the financial statements.

22A If the entity’s own equity instruments to be received, or delivered, by

the entity upon settlement of a contract are puttable financial

instruments with all the features and meeting the conditions described

in paragraphs 16A and 16B, or instruments that impose on the entity

an obligation to deliver to another party a pro rata share of the net

assets of the entity only on liquidation with all the features and

meeting the conditions described in paragraphs 16C and 16D, the

contract is a financial asset or a financial liability. This includes a

contract that will be settled by the entity receiving or delivering a fixed

number of such instruments in exchange for a fixed amount of cash or

another financial asset.

23 With the exception of the circumstances described in paragraphs 16A

and 16B or paragraphs 16C and 16D, a contract that contains an

obligation for an entity to purchase its own equity instruments for cash

or another financial asset gives rise to a financial liability for the

present value of the redemption amount (for example, for the present

value of the forward repurchase price, option exercise price or other

redemption amount). This is the case even if the contract itself is an

equity instrument. One example is an entity’s obligation under a

forward contract to purchase its own equity instruments for cash. The

financial liability is recognised initially at the present value of the

redemption amount, and is reclassified from equity. Subsequently, the

financial liability is measured in accordance with Ind AS 109. If the

contract expires without delivery, the carrying amount of the financial

liability is reclassified to equity. An entity’s contractual obligation to

purchase its own equity instruments gives rise to a financial liability for

the present value of the redemption amount even if the obligation to

purchase is conditional on the counterparty exercising a right to

redeem (eg a written put option that gives the counterparty the right to


sell an entity’s own equity instruments to the en tity for a fixed price).

24 A contract that will be settled by the entity delivering or receiving a

fixed number of its own equity instruments in exchange for a variable

amount of cash or another financial asset is a financial asset or

financial liability. An example is a contract for the entity to deliver 100

of its own equity instruments in return for an amount of cash calculated

to equal the value of 100 ounces of gold.

Contingent settlement provisions

25 A financial instrument may require the entity to deliver cash or another

financial asset, or otherwise to settle it in such a way that it would be a

financial liability, in the event of the occurrence or non-occurrence of

uncertain future events (or on the outcome of uncertain circumstances)

that are beyond the control of both the issuer and the holder of the

instrument, such as a change in a stock market index, consumer price

index, interest rate or taxation requirements, or the issuer’s future

revenues, net income or debt-to-equity ratio. The issuer of such an

instrument does not have the unconditional right to avoid delivering

cash or another financial asset (or otherwise to settle it in such a way

that it would be a financial liability). Therefore, it is a financial liability

of the issuer unless:

(a) the part of the contingent settlement provision that could require

settlement in cash or another financial asset (or otherwise in

such a way that it would be a financial liability) is not genuine;

(b) the issuer can be required to settle the obligation in cash or

another financial asset (or otherwise to settle it in such a way

that it would be a financial liability) only in the event of

liquidation of the issuer; or

(c) the instrument has all the features and meets the conditions in

paragraphs 16A and 16B.

Settlement options

26 When a derivative financial instrument gives one party a choice

over how it is settled (eg the issuer or the holder can choose

settlement net in cash or by exchanging shares for cash), it is a

financial asset or a financial liability unless all of the settlement

alternatives would result in it being an equity instrument.

http://eifrs.iasb.org/eifrs/stdcontent/2009_Bound_Volume/IAS32c_2005-08-18_en-3.html#SL147175



27 An example of a derivative financial instrument with a settlement

option that is a financial liability is a share option that the issuer can

decide to settle net in cash or by exchanging its own shares for cash.

Similarly, some contracts to buy or sell a non-financial item in

exchange for the entity’s own equity instruments are within the scope

of this Standard because they can be settled either by delivery of the

non-financial item or net in cash or another financial instrument (see

paragraphs 8–10). Such contracts are financial assets or financial

liabilities and not equity instruments.

Compound financial instruments (see also paragraphs AG30–AG35)

28 The issuer of a non-derivative financial instrument shall evaluate

the terms of the financial instrument to determine whether it

contains both a liability and an equity component. Such

components shall be classified separately as financial liabilities,

financial assets or equity instruments in accordance with

paragraph 15.

29 An entity recognises separately the components of a financial

instrument that (a) creates a financial liability of the entity and (b)

grants an option to the holder of the instrument to convert it into an

equity instrument of the entity. For example, a bond or similar

instrument convertible by the holder into a fixed number of ordinary

shares of the entity is a compound financial instrument. From the

perspective of the entity, such an instrument comprises two

components: a financial liability (a contractual arrangement to deliver

cash or another financial asset) and an equity instrument (a call option

granting the holder the right, for a specified period of time, to convert it

into a fixed number of ordinary shares of the entity). The economic

effect of issuing such an instrument is substantially the same as

issuing simultaneously a debt instrument with an early settlement

provision and warrants to purchase ordinary shares, or issuing a debt

instrument with detachable share purchase warrants. Accordingly, in

all cases, the entity presents the liability and equity components

separately in its balance sheet.

30 Classification of the liability and equity components of a convertible

instrument is not revised as a result of a change in the likelihood that a

conversion option will be exercised, even when exercise of the option




may appear to have become economically advantageous to some

holders. Holders may not always act in the way that might be expected

because, for example, the tax consequences resulting from conversion

may differ among holders. Furthermore, the likelihood of conversion

will change from time to time. The entity’s contractual obligation to

make future payments remains outstanding until it is extinguished

through conversion, maturity of the instrument or some other

transaction.

31 Ind AS 109 deals with the measurement of financial assets and

financial liabilities. Equity instruments are instruments that evidence a

residual interest in the assets of an entity after deducting all of its

liabilities. Therefore, when the initial carrying amount of a compound

financial instrument is allocated to its equity and liability components,

the equity component is assigned the residual amount after deducting

from the fair value of the instrument as a whole the amount separately

determined for the liability component. The value of any derivative

features (such as a call option) embedded in the compound financial

instrument other than the equity component (such as an equity

conversion option) is included in the liability component. The sum of

the carrying amounts assigned to the liability and equity components

on initial recognition is always equal to the fair value that would be

ascribed to the instrument as a whole. No gain or loss arises from

initially recognising the components of the instrument separately.

32 Under the approach described in paragraph 31, the issuer of a bond

convertible into ordinary shares first determines the carrying amount of

the liability component by measuring the fair value of a similar liability

(including any embedded non-equity derivative features) that does not

have an associated equity component. The carrying amount of the

equity instrument represented by the option to convert the instrument

into ordinary shares is then determined by deducting the fair value of

the financial liability from the fair value of the compound financial

instrument as a whole.

Treasury shares (see also paragraph AG36)

33 If an entity reacquires its own equity instruments, those

instruments (‘treasury shares’) shall be deducted from equity. No

gain or loss shall be recognised in profit or loss on the purchase,

sale, issue or cancellation of an entity’s own equity instruments.

Such treasury shares may be acquired and held by the entity or


by other members of the consolidated group. Consideration paid

or received shall be recognised directly in equity.

34 The amount of treasury shares held is disclosed separately either in

the balance sheet or in the notes, in accordance with Ind AS 1,

Presentation of Financial Statements. An entity provides disclosure in

accordance with Ind AS 24, Related Party Disclosures, if the entity

reacquires its own equity instruments from related parties.

Interest, dividends, losses and gains (see also paragraph AG37)

35 Interest, dividends, losses and gains relating to a financial

instrument or a component that is a financial liability shall be

recognised as income or expense in profit or loss. Distributions

to holders of an equity instrument shall be recognised by the

entity directly in equity. Transaction costs of an equity

transaction shall be accounted for as a deduction from equity.

35A Income tax relating to distributions to holders of an equity instrument

and to transaction costs of an equity transaction shall be accounted for

in accordance with Ind AS 12, Income Taxes.

36 The classification of a financial instrument as a financial liability or an

equity instrument determines whether interest, dividends, losses and

gains relating to that instrument are recognised as income or expense

in profit or loss. Thus, dividend payments on shares wholly recognised

as liabilities are recognised as expenses in the same way as interest

on a bond. Similarly, gains and losses associated with redemptions or

refinancings of financial liabilities are recognised in profit or loss,

whereas redemptions or refinancings of equity instruments are

recognised as changes in equity. Changes in the fair value of an

equity instrument are not recognised in the financial statements.

37 An entity typically incurs various costs in issuing or acquiring its own

equity instruments. Those costs might include registration and other

regulatory fees, amounts paid to legal, accounting and other

professional advisers, printing costs and stamp duties. The transaction

costs of an equity transaction are accounted for as a deduction from

equity to the extent they are incremental costs directly attributable to

the equity transaction that otherwise would have been avoided. The

costs of an equity transaction that is abandoned are recognised as an




expense.

38 Transaction costs that relate to the issue of a compound financial

instrument are allocated to the liability and equity components of the

instrument in proportion to the allocation of proceeds. Transaction

costs that relate jointly to more than one transaction (for example,

costs of a concurrent offering of some shares and a stock exchange

listing of other shares) are allocated to those transactions using a

basis of allocation that is rational and consistent with similar

transactions.

39 The amount of transaction costs accounted for as a deduction from

equity in the period is disclosed separately in accordance with Ind AS

1.

40 Dividends classified as an expense may be presented in the statement

of profit and loss either with interest on other liabilities or as a

separate item. In addition to the requirements of this Standard,

disclosure of interest and dividends is subject to the requirements of

Ind AS 1 and Ind AS 107. In some circumstances, because of the

differences between interest and dividends with respect to matters

such as tax deductibility, it is desirable to disclose them separately in

the statement of profit and loss. Disclosures of the tax effects are

made in accordance with Ind AS 12.

41 Gains and losses related to changes in the carrying amount of a

financial liability are recognised as income or expense in profit or loss

even when they relate to an instrument that includes a right to the

residual interest in the assets of the entity in exchange for cash or

another financial asset (see paragraph 18(b)). Under Ind AS 1 the

entity presents any gain or loss arising from remeasurement of such

an instrument separately in the statement of profit and loss when it is

relevant in explaining the entity’s performance.

Offsetting a financial asset and a financial liability (see also paragraphs AG38A-AG38F and AG39)

42 A financial asset and a financial liability shall be offset and the

net amount presented in the balance sheet when, and only when,

an entity:

(a) currently has a legally enforceable right to set off the


recognised amounts; and

(b) intends either to settle on a net basis, or to realise the asset

and settle the liability simultaneously.

In accounting for a transfer of a financial asset that does not

qualify for derecognition, the entity shall not offset the

transferred asset and the associated liability (see Ind AS 109,

paragraph 3.2.22).

43 This Standard requires the presentation of financial assets and

financial liabilities on a net basis when doing so reflects an entity’s

expected future cash flows from settling two or more separate

financial instruments. When an entity has the right to receive or pay a

single net amount and intends to do so, it has, in effect, only a single

financial asset or financial liability. In other circumstances, financial

assets and financial liabilities are presented separately from each

other consistently with their characteristics as resources or

obligations of the entity. An entity shall disclose the information

required in paragraphs 13B–13E of Ind AS 107 for recognised

financial instruments that are within the scope of paragraph 13A of

Ind AS 107.

44 Offsetting a recognised financial asset and a recognised financial

liability and presenting the net amount differs from the derecognition of

a financial asset or a financial liability. Although offsetting does not

give rise to recognition of a gain or loss, the derecognition of a

financial instrument not only results in the removal of the previously

recognised item from the balance sheet but also may result in

recognition of a gain or loss.

45 A right of set-off is a debtor’s legal right, by contract or otherwise, to

settle or otherwise eliminate all or a portion of an amount due to a

creditor by applying against that amount an amount due from the

creditor. In unusual circumstances, a debtor may have a legal right to

apply an amount due from a third party against the amount due to a

creditor provided that there is an agreement between the three parties

that clearly establishes the debtor’s right of set-off. Because the right

of set-off is a legal right, the conditions supporting the right may vary

from one legal jurisdiction to another and the laws applicable to the

relationships between the parties need to be considered.

46 The existence of an enforceable right to set off a financial asset and a


financial liability affects the rights and obligations associated with a

financial asset and a financial liability and may affect an entity’s

exposure to credit and liquidity risk. However, the existence of the

right, by itself, is not a sufficient basis for offsetting. In the absence of

an intention to exercise the right or to settle simultaneously, the

amount and timing of an entity’s future cash flows are not affected.

When an entity intends to exercise the right or to settle simul taneously,

presentation of the asset and liability on a net basis reflects more

appropriately the amounts and timing of the expected future cash

flows, as well as the risks to which those cash flows are exposed. An

intention by one or both parties to settle on a net basis without the

legal right to do so is not sufficient to justify offsetting because the

rights and obligations associated with the individual financial asset and

financial liability remain unaltered.

47 An entity’s intentions with respect to settlement of particular assets

and liabilities may be influenced by its normal business practices, the

requirements of the financial markets and other circumstances that

may limit the ability to settle net or to settle simultaneously. When an

entity has a right of set-off, but does not intend to settle net or to

realise the asset and settle the liability simultaneously, the effect of the

right on the entity’s credit risk exposure is disclosed in accordance

with paragraph 36 of Ind AS 107.

48 Simultaneous settlement of two financial instruments may occur

through, for example, the operation of a clearing house in an

organised financial market or a face-to-face exchange. In these

circumstances the cash flows are, in effect, equivalent to a single net

amount and there is no exposure to credit or liquidity risk. In other

circumstances, an entity may settle two instruments by receiving and

paying separate amounts, becoming exposed to credit risk for the full

amount of the asset or liquidity risk for the full amount of the liability.

Such risk exposures may be significant even though relatively brief.

Accordingly, realisation of a financial asset and settlement of a

financial liability are treated as simultaneous only when the

transactions occur at the same moment.

49 The conditions set out in paragraph 42 are generally not satisfied and

offsetting is usually inappropriate when:

(a) several different financial instruments are used to emulate the

features of a single financial instrument (a ‘synthetic

http://eifrs.iasb.org/eifrs/stdcontent/2009_Bound_Volume/IFRS07c_2005-08-18_en-4.html#SL144807


instrument’);

(b) financial assets and financial liabilities arise from financial

instruments having the same primary risk exposure

(for example, assets and liabilities within a portfolio of forward

contracts or other derivative instruments) but involve different

counterparties;

(c) financial or other assets are pledged as collateral for non-

recourse financial liabilities;

(d) financial assets are set aside in trust by a debtor for the purpose

of discharging an obligation without those assets having been

accepted by the creditor in settlement of the obligation

(for example, a sinking fund arrangement); or

(e) obligations incurred as a result of events giving rise to losses

are expected to be recovered from a third party by virtue of a

claim made under an insurance contract.

50 An entity that undertakes a number of financial instrument transactions

with a single counterparty may enter into a ‘master netting

arrangement’ with that counterparty. Such an agreement p rovides for a

single net settlement of all financial instruments covered by the

agreement in the event of default on, or termination of, any one

contract. These arrangements are commonly used by financial

institutions to provide protection against loss in the event of

bankruptcy or other circumstances that result in a counterparty being

unable to meet its obligations. A master netting arrangement

commonly creates a right of set-off that becomes enforceable and

affects the realisation or settlement of individual financial assets and

financial liabilities only following a specified event of default or in other

circumstances not expected to arise in the normal course of business.

A master netting arrangement does not provide a basis for offsetting

unless both of the criteria in paragraph 42 are satisfied. When financial

assets and financial liabilities subject to a master netting arrangement

are not offset, the effect of the arrangement on an entity’s exposure to

credit risk is disclosed in accordance with paragraph 36 of Ind AS 107.

51-95 [Refer Appendix 1]


1Effective date and transition

96 *

96A *

96B *

96C *

97 *

97A *

97B *

97C *

97D *

97E *

97F *

97G *

97H *

97I *

97J *

97K *

97L *

97M *

97N *

97O *

97P *

97Q As a consequence of issuance of Ind AS 115, Revenue from Contracts

with Customers, paragraph AG21 is amended. An entity shall apply

those amendments when it applies Ind AS 115.

1 Heading and paragraphs 96-97Q inserted vide Notification No. G.S.R. 310(E) dated 28th March, 2018. * Refer Appendix 1


97R2 Omitted* 97S Ind AS 116 amended paragraphs AG9 and AG10. An entity shall apply

those amendments when it applies Ind AS 116.

2 Paragraphs 97R-97S inserted vide Notification No. G.S.R. 273(E) dated 30th March, 2019. * Refer Appendix 1


Appendix A

Application Guidance

Ind AS 32 Financial Instruments: Presentation

This appendix is an integral part of the Ind AS.

AG1 This Application Guidance explains the application of particular

aspects of the Standard.

AG2 The Standard does not deal with the recognition or measurement of

financial instruments. Requirements about the recognition and

measurement of financial assets and financial liabilities are set out in

Ind AS 109.

Definitions (paragraphs 11–14)

Financial assets and financial liabilities

AG3 Currency (cash) is a financial asset because it represents the medium

of exchange and is therefore the basis on which all transactions are

measured and recognised in financial statements. A deposit of cash

with a bank or similar financial institution is a financial asset because it

represents the contractual right of the depositor to obtain cash from

the institution or to draw a cheque or similar instrument against the

balance in favour of a creditor in payment of a financial liability.

AG4 Common examples of financial assets representing a contractual right

to receive cash in the future and corresponding financial liabilities

representing a contractual obligation to deliver cash in the future are:

(a) trade accounts receivable and payable;

(b) notes receivable and payable;

(c) loans receivable and payable; and

(d) bonds receivable and payable.

In each case, one party’s contractual right to receive (or obligation to

pay) cash is matched by the other party’s corresponding obligation to

pay (or right to receive).

AG5 Another type of financial instrument is one for which the economic




benefit to be received or given up is a financial asset other than cash.

For example, a note payable in government bonds gives the holder the

contractual right to receive and the issuer the contractual obligation to

deliver government bonds, not cash. The bonds are financial assets

because they represent obligations of the issuing government to pay

cash. The note is, therefore, a financial asset of the note holder and a

financial liability of the note issuer.

AG6 ‘Perpetual’ debt instruments (such as ‘perpetual’ bonds, debentures

and capital notes) normally provide the holder with the contractual

right to receive payments on account of interest at fixed dates

extending into the indefinite future, either with no right to receive a

return of principal or a right to a return of principal under terms that

make it very unlikely or very far in the future. For example, an entity

may issue a financial instrument requiring it to make annual payments

in perpetuity equal to a stated interest rate of 8 per cent applied to a

stated par or principal amount of Rs. 1,000. Assuming 8 per cent to be

the market rate of interest for the instrument when issued, the issuer

assumes a contractual obligation to make a stream of future interest

payments having a fair value (present value) of Rs. 1,000 on initial

recognition. The holder and issuer of the instrument have a financial

asset and a financial liability, respectively.

AG7 A contractual right or contractual obligation to receive, deliver or

exchange financial instruments is itself a financial instrument. A chain

of contractual rights or contractual obligations meets the definition of a

financial instrument if it will ultimately lead to the receipt or payment of

cash or to the acquisition or issue of an equity instrument.

AG8 The ability to exercise a contractual right or the requirement to satisfy

a contractual obligation may be absolute, or it may be contingent on

the occurrence of a future event. For example, a financial guarantee is

a contractual right of the lender to receive cash from the guarantor,

and a corresponding contractual obligation of the guarantor to pay the

lender, if the borrower defaults. The contractual right and obligation

exist because of a past transaction or event (assumption of the

guarantee), even though the lender’s ability to exercise its right and

the requirement for the guarantor to perform under its obligation are

both contingent on a future act of default by the borrower. A contingent

right and obligation meet the definition of a financial asset and a

financial liability, even though such assets and liabilities are not


always recognised in the financial statements. Some of these

contingent rights and obligations may be insurance contracts within

the scope of Ind AS 104.

AG9 3A lease typically creates an entitlement of the lessor to receive, and

an obligation of the lessee to pay, a stream of payments that are

substantially the same as blended payments of principal and interest

under a loan agreement. The lessor accounts for its investment in the

amount receivable under a finance lease rather than the underlying

asset itself that is subject to the finance lease. Accordingly, a lessor

regards a finance lease as a financial instrument. Under Ind AS 116, a

lessor does not recognise its entitlement to receive lease payments

under an operating lease. The lessor continues to account for the

underlying asset itself rather than any amount receivable in the future

under the contract. Accordingly, a lessor does not regard an operating

lease as a financial instrument, except as regards individual payments

currently due and payable by lessee.

AG10 Physical assets (such as inventories, property, plant and equipment),

right-of-use assets and intangible assets (such as patents and

trademarks) are not financial assets. Control of such physical assets,

right-of-use assets and intangible assets creates an opportunity to

generate an inflow of cash or another financial asset, but it does not

give rise to a present right to receive cash or another financial asset.

AG11 Assets (such as prepaid expenses) for which the future economic

benefit is the receipt of goods or services, rather than the right to

receive cash or another financial asset, are not financial assets.

Similarly, items such as deferred revenue and most warranty

obligations are not financial liabilities because the outflow of economic

benefits associated with them is the delivery of goods and services

rather than a contractual obligation to pay cash or another financial

asset.

AG12 Liabilities or assets that are not contractual (such as income taxes that

are created as a result of statutory requirements imposed by

governments) are not financial liabilities or financial assets.

Accounting for income taxes is dealt with in Ind AS 12. Similarly,

constructive obligations, as defined in Ind AS 37, Provisions,

3 Paragraphs AG9-AG10 substituted vide Notification No. G.S.R. 273(E) dated 30th March, 2019.


Contingent Liabilities and Contingent Assets , do not arise from

contracts and are not financial liabilities.

Equity instruments

AG13 Examples of equity instruments include non-puttable ordinary shares,

some puttable instruments (see paragraphs 16A and 16B), some

instruments that impose on the entity an obligation to deliver to

another party a pro rata share of the net assets of the entity only on

liquidation (see paragraphs 16C and 16D), some types of preference

shares (see paragraphs AG25 and AG26), and warrants or written call

options that allow the holder to subscribe for or purchase a fixed

number of non-puttable ordinary shares in the issuing entity in

exchange for a fixed amount of cash or another financial asset. An

entity’s obligation to issue or purchase a fixed number of its own equity

instruments in exchange for a fixed amount of cash or another

financial asset is an equity instrument of the entity (except as stated in

paragraph 22A). However, if such a contract contains an obligation for

the entity to pay cash or another financial asset (other than a contract

classified as equity in accordance with paragraphs 16A and 16B or

paragraphs 16C and 16D), it also gives rise to a liability for the present

value of the redemption amount (see paragraph AG27(a)). An issuer of

non-puttable ordinary shares assumes a liability when it formally acts

to make a distribution and becomes legally obliged to the shareholders

to do so. This may be the case following the declaration of a dividend

or when the entity is being wound up and any assets remaining after

the satisfaction of liabilities become distributable to shareholders.

AG14 A purchased call option or other similar contract acquired by an entity

that gives it the right to reacquire a fixed number of its own equity

instruments in exchange for delivering a fixed amount of cash or

another financial asset is not a financial asset of the entity (except as

stated in paragraph 22A). Instead, any consideration paid for such a

contract is deducted from equity.

The class of instruments that is subordinate to all other classes

(paragraphs 16A(b) and 16C(b))

AG14A One of the features of paragraphs 16A and 16C is that the financial

instrument is in the class of instruments that is subordinate to all other

classes.

AG14B When determining whether an instrument is in the subordinate class,


an entity evaluates the instrument’s claim on liquidation as if it were to

liquidate on the date when it classifies the instrument. An entity shall

reassess the classification if there is a change in relevant

circumstances. For example, if the entity issues or redeems another

financial instrument, this may affect whether the instrument in question

is in the class of instruments that is subordinate to all other classes.

AG14C An instrument that has a preferential right on liquidation of the entity

is not an instrument with an entitlement to a pro rata share of the net

assets of the entity. For example, an instrument has a preferential right

on liquidation if it entitles the holder to a fixed dividend on liquidation,

in addition to a share of the entity’s net assets, when other instruments

in the subordinate class with a right to a pro rata share of the net

assets of the entity do not have the same right on liquidation.

AG14D If an entity has only one class of financial instruments, that class

shall be treated as if it were subordinate to all other classes.

Total expected cash flows attributable to the instrument over the

life of the instrument (paragraph 16A(e))

AG14E The total expected cash flows of the instrument over the life of the

instrument must be substantially based on the profit or loss, change in

the recognised net assets or fair value of the recognised and

unrecognised net assets of the entity over the life of the instrument.

Profit or loss and the change in the recognised net assets shall be

measured in accordance with relevant Ind ASs.

Transactions entered into by an instrument holder other than as

owner of the entity (paragraphs 16A and 16C)

AG14F The holder of a puttable financial instrument or an instrument that

imposes on the entity an obligation to deliver to another party a pro

rata share of the net assets of the entity only on liquidation may enter

into transactions with the entity in a role other than that of an owner.

For example, an instrument holder may also be an employee of the

entity. Only the cash flows and the contractual terms and conditions of

the instrument that relate to the instrument holder as an owner of the

entity shall be considered when assessing whether the instrument

should be classified as equity under paragraph 16A or paragraph 16C.

AG14G An example is a limited partnership that has limited and general

partners. Some general partners may provide a guarantee to the entity


and may be remunerated for providing that guarantee. In such

situations, the guarantee and the associated cash flows relate to the

instrument holders in their role as guarantors and not in their roles as

owners of the entity. Therefore, such a guarantee and the associated

cash flows would not result in the general partners being considered

subordinate to the limited partners, and would be disregarded when

assessing whether the contractual terms of the limited partnership

instruments and the general partnership instruments are identical.

AG14H Another example is a profit or loss sharing arrangement that

allocates profit or loss to the instrument holders on the basis of

services rendered or business generated during the current and

previous years. Such arrangements are transactions with instrument

holders in their role as non-owners and should not be considered

when assessing the features listed in paragraph 16A or paragraph

16C. However, profit or loss sharing arrangements that allocate profit

or loss to instrument holders based on the nominal amount of their

instruments relative to others in the class represent transactions with

the instrument holders in their roles as owners and should be

considered when assessing the features listed in paragraph 16A or

paragraph 16C.

AG14I The cash flows and contractual terms and conditions of a transaction

between the instrument holder (in the role as a non-owner) and the

issuing entity must be similar to an equivalent transaction that might

occur between a non-instrument holder and the issuing entity.

No other financial instrument or contract with total cash flows

that substantially fixes or restricts the residual return to the

instrument holder (paragraphs 16B and 16D)

AG14J A condition for classifying as equity a financial instrument that

otherwise meets the criteria in paragraph 16A or paragraph 16C is that

the entity has no other financial instrument or contract that has (a)

total cash flows based substantially on the profit or loss, the change in

the recognised net assets or the change in the fair value of the

recognised and unrecognised net assets of the entity and (b) the effect

of substantially restricting or fixing the residual return. The following

instruments, when entered into on normal commercial terms with

unrelated parties, are unlikely to prevent instruments that otherwise

meet the criteria in paragraph 16A or paragraph 16C from being

classified as equity:


(a) instruments with total cash flows substantially based on specific

assets of the entity.

(b) instruments with total cash flows based on a percentage of

revenue.

(c) contracts designed to reward individual employees for services

rendered to the entity.

(d) contracts requiring the payment of an insignificant percentage of

profit for services rendered or goods provided.

Derivative financial instruments

AG15 Financial instruments include primary instruments (such as

receivables, payables and equity instruments) and derivative financial

instruments (such as financial options, futures and forwards, interest

rate swaps and currency swaps). Derivative financial instruments meet

the definition of a financial instrument and, accordingly, are with in the

scope of this Standard.

AG16 Derivative financial instruments create rights and obligations that have

the effect of transferring between the parties to the instrument one or

more of the financial risks inherent in an underlying primary financial

instrument. On inception, derivative financial instruments give one

party a contractual right to exchange financial assets or financial

liabilities with another party under conditions that are potentially

favourable, or a contractual obligation to exchange financial assets or

financial liabilities with another party under conditions that are

potentially unfavourable. However, they generally4 do not result in a

transfer of the underlying primary financial instrument on inception of

the contract, nor does such a transfer necessarily take place on

maturity of the contract. Some instruments embody both a right and an

obligation to make an exchange. Because the terms of the exchange

are determined on inception of the derivative instrument, as prices in

financial markets change those terms may become either favourable

or unfavourable.

AG17 A put or call option to exchange financial assets or financial liabilities

(ie financial instruments other than an entity’s own equity instruments)

gives the holder a right to obtain potential future economic benefits

4 This is true of most, but not all derivatives, eg in some cross-currency interest rate swaps principal is exchanged on inception (and re-exchanged on maturity).



associated with changes in the fair value of the financial instrument

underlying the contract. Conversely, the writer of an option assumes

an obligation to forgo potential future economic benefits or bear

potential losses of economic benefits associated with changes in the

fair value of the underlying financial instrument. The contractual right

of the holder and obligation of the writer meet the definition of a

financial asset and a financial liability, respectively. The financial

instrument underlying an option contract may be any financial asset,

including shares in other entities and interest-bearing instruments. An

option may require the writer to issue a debt instrument, rather than

transfer a financial asset, but the instrument underlying the option

would constitute a financial asset of the holder if the option were

exercised. The option-holder’s right to exchange the financial asset

under potentially favourable conditions and the writer’s obligation to

exchange the financial asset under potentially unfavourable conditions

are distinct from the underlying financial asset to be exchanged upon

exercise of the option. The nature of the holder’s right and of the

writer’s obligation are not affected by the likelihood that the option will

be exercised.

AG18 Another example of a derivative financial instrument is a forward

contract to be settled in six months’ time in which one party

(the purchaser) promises to deliver Rs.1,000,000 cash in exchange for

Rs.1,000,000 face amount of fixed rate government bonds, and the

other party (the seller) promises to deliver Rs.1,000,000 face amount

of fixed rate government bonds in exchange for Rs.1,000,000 cash.

During the six months, both parties have a contractual right and a

contractual obligation to exchange financial instruments. If the market

price of the government bonds rises above Rs.1,000,000, the

conditions will be favourable to the purchaser and unfavourable to the

seller; if the market price falls below Rs.1,000,000, the effect will be

the opposite. The purchaser has a contractual right (a financial asset)

similar to the right under a call option held and a contractual obligation

(a financial liability) similar to the obligation under a put option written;

the seller has a contractual right (a financial asset) similar to the right

under a put option held and a contractual obligation (a financial

liability) similar to the obligation under a call option written. As with

options, these contractual rights and obligations constitute financial

assets and financial liabilities separate and distinct from the underlying

financial instruments (the bonds and cash to be exchanged). Both



parties to a forward contract have an obligation to perform at the

agreed time, whereas performance under an option contract occurs

only if and when the holder of the option chooses to exercise it.

AG19 Many other types of derivative instruments embody a right or

obligation to make a future exchange, including interest rate and

currency swaps, interest rate caps, collars and floors, loan

commitments, note issuance facilities and letters of credit. An interest

rate swap contract may be viewed as a variation of a forward contract

in which the parties agree to make a series of future exchanges of

cash amounts, one amount calculated with reference to a floating

interest rate and the other with reference to a fixed interest rate.

Futures contracts are another variation of forward contracts, differing

primarily in that the contracts are standardised and traded on an

exchange.

Contracts to buy or sell non-financial items (paragraphs 8–10)

AG20 Contracts to buy or sell non-financial items do not meet the definition

of a financial instrument because the contractual right of one party to

receive a non-financial asset or service and the corresponding

obligation of the other party do not establish a present right or

obligation of either party to receive, deliver or exchange a financial

asset. For example, contracts that provide for settlement only by the

receipt or delivery of a non-financial item (eg an option, futures or

forward contract on silver) are not financial instruments. Many

commodity contracts are of this type. Some are standardised in form

and traded on organised markets in much the same fashion as some

derivative financial instruments. For example, a commodity futures

contract may be bought and sold readily for cash because it is listed

for trading on an exchange and may change hands many times.

However, the parties buying and selling the contract are, in effect,

trading the underlying commodity. The ability to buy or sell a

commodity contract for cash, the ease with which it may be bought or

sold and the possibility of negotiating a cash settlement of the

obligation to receive or deliver the commodity do not alter the

fundamental character of the contract in a way that creates a financial

instrument. Nevertheless, some contracts to buy or sell non-financial

items that can be settled net or by exchanging financial instruments, or

in which the non-financial item is readily convertible to cash, are within


the scope of the Standard as if they were financial instruments

(see paragraph 8).

AG21 5Except as required by Ind AS 115, Revenue from Contracts with

Customers, a contract that involves the receipt or delivery of physical

assets does not give rise to a financial asset of one party and a

financial liability of the other party unless any corresponding payment

is deferred past the date on which the physical assets are transferred.

Such is the case with the purchase or sale of goods on trade credit .

AG22 Some contracts are commodity-linked, but do not involve settlement

through the physical receipt or delivery of a commodity. They specify

settlement through cash payments that are determined according to a

formula in the contract, rather than through payment of fixed amounts.

For example, the principal amount of a bond may be calculated by

applying the market price of oil prevailing at the maturity of the bond to

a fixed quantity of oil. The principal is indexed by reference to a

commodity price, but is settled only in cash. Such a contract

constitutes a financial instrument.

AG23 The definition of a financial instrument also encompasses a contract

that gives rise to a non-financial asset or non-financial liability in

addition to a financial asset or financial liability. Such financial

instruments often give one party an option to exchange a financial

asset for a non-financial asset. For example, an oil-linked bond may

give the holder the right to receive a stream of fixed periodic interest

payments and a fixed amount of cash on maturity, with the option to

exchange the principal amount for a fixed quantity of oil. The

desirability of exercising this option will vary from time to time

depending on the fair value of oil relative to the exchange ratio of cash

for oil (the exchange price) inherent in the bond. The intentions of the

bondholder concerning the exercise of the option do not affect the

substance of the component assets. The financial asset of the holder

and the financial liability of the issuer make the bond a financial

instrument, regardless of the other types of assets and liabilities also

created.

AG24 [Refer Appendix 1]

5 Substituted vide Notification No. G.S.R. 365(E) dated 30th March, 2016 and, thereafter,

substituted vide Notification No. G.S.R. 310(E) dated 28th March, 2018.


Presentation

Liabilities and equity (paragraphs 15–27)

No contractual obligation to deliver cash or another financial

asset (paragraphs 17–20)

AG25 Preference shares may be issued with various rights. In determining

whether a preference share is a financial liability or an equity

instrument, an issuer assesses the particular rights attaching to the

share to determine whether it exhibits the fundamental characteristic

of a financial liability. For example, a preference share that provides

for redemption on a specific date or at the option of the holder contains

a financial liability because the issuer has an obligation to transfer

financial assets to the holder of the share. The potential inability of an

issuer to satisfy an obligation to redeem a preference share when

contractually required to do so, whether because of a lack of funds, a

statutory restriction or insufficient profits or reserves, does not negate

the obligation. An option of the issuer to redeem the shares for cash

does not satisfy the definition of a financial liability because the issuer

does not have a present obligation to transfer financial assets to the

shareholders. In this case, redemption of the shares is solely at the

discretion of the issuer. An obligation may arise, however, when the

issuer of the shares exercises its option, usually by formally notifying

the shareholders of an intention to redeem the shares.

AG26 When preference shares are non-redeemable, the appropriate

classification is determined by the other rights that attach to them.

Classification is based on an assessment of the substance of the

contractual arrangements and the definitions of a financial liability and

an equity instrument. When distributions to holders of the preference

shares, whether cumulative or non-cumulative, are at the discretion of

the issuer, the shares are equity instruments. The classification of a

preference share as an equity instrument or a financial liability is not

affected by, for example:

(a) a history of making distributions;

(b) an intention to make distributions in the future;

(c) a possible negative impact on the price of ordinary shares of the

issuer if distributions are not made (because of restrictions on


paying dividends on the ordinary shares if dividends are not

paid on the preference shares);

(d) the amount of the issuer’s reserves;

(e) an issuer’s expectation of a profit or loss for a period; or

(f) an ability or inability of the issuer to influence the amount of its

profit or loss for the period.

Settlement in the entity’s own equity instruments (paragraphs 21–

24)

AG27 The following examples illustrate how to classify different types of

contracts on an entity’s own equity instruments:

(a) A contract that will be settled by the entity receiving or

delivering a fixed number of its own shares for no future

consideration, or exchanging a fixed number of its own shares

for a fixed amount of cash or another financial asset, is an

equity instrument (except as stated in paragraph 22A).

Accordingly, any consideration received or paid for such a

contract is added directly to or deducted directly from equity.

One example is an issued share option that gives the

counterparty a right to buy a fixed number of the entity’s shares

for a fixed amount of cash. However, if the contract requires the

entity to purchase (redeem) its own shares for cash or another

financial asset at a fixed or determinable date or on demand,

the entity also recognises a financial liability for the present

value of the redemption amount (with the exception of

instruments that have all the features and meet the conditions in

paragraphs 16A and 16B or paragraphs 16C and 16D). One

example is an entity’s obligation under a forward contract to

repurchase a fixed number of its own shares for a fixed amount

of cash.

(b) An entity’s obligation to purchase its own shares for cash gives

rise to a financial liability for the present value of the redemption

amount even if the number of shares that the entity is obliged to

repurchase is not fixed or if the obligation is conditional on the

counterparty exercising a right to redeem (except as stated in

paragraphs 16A and 16B or paragraphs 16C and 16D). One

example of a conditional obligation is an issued option that


requires the entity to repurchase its own shares for cash if the

counterparty exercises the option.

(c) A contract that will be settled in cash or another financial asset

is a financial asset or financial liability even if the amount of

cash or another financial asset that will be received or delivered

is based on changes in the market price of the entity’s own

equity (except as stated in paragraphs 16A and 16B or

paragraphs 16C and 16D). One example is a net cash-settled

share option.

(d) A contract that will be settled in a variable number of the entity’s

own shares whose value equals a fixed amount or an amount

based on changes in an underlying variable (eg a commodity

price) is a financial asset or a financial liability. An example is a

written option to buy gold that, if exercised, is settled net in the

entity’s own instruments by the entity delivering as many of

those instruments as are equal to the value of the option

contract. Such a contract is a financial asset or financial liability

even if the underlying variable is the entity’s own share price

rather than gold. Similarly, a contract that wil l be settled in a

fixed number of the entity’s own shares, but the rights attaching

to those shares will be varied so that the settlement value

equals a fixed amount or an amount based on changes in an

underlying variable, is a financial asset or a financial liability.

Contingent settlement provisions (paragraph 25)

AG28 Paragraph 25 requires that if a part of a contingent settlement

provision that could require settlement in cash or another financial

asset (or in another way that would result in the instrument being a

financial liability) is not genuine, the settlement provision does not

affect the classification of a financial instrument. Thus, a contract that

requires settlement in cash or a variable number of the entity’s own

shares only on the occurrence of an event that is extremely rare,

highly abnormal and very unlikely to occur is an equity instrument.

Similarly, settlement in a fixed number of an entity’s own shares may

be contractually precluded in circumstances that are outside the

control of the entity, but if these circumstances have no genuine

possibility of occurring, classification as an equity instrument is

appropriate.


Treatment in consolidated financial statements

AG29 In consolidated financial statements, an entity presents non-controlling

interests—ie the interests of other parties in the equity and income of

its subsidiaries—in accordance with Ind AS 1 and Ind AS 110. When

classifying a financial instrument (or a component of i t) in consolidated

financial statements, an entity considers all terms and conditions

agreed between members of the group and the holders of the

instrument in determining whether the group as a whole has an

obligation to deliver cash or another financial asset in respect of the

instrument or to settle it in a manner that results in liability

classification. When a subsidiary in a group issues a financial

instrument and a parent or other group entity agrees additional terms

directly with the holders of the instrument (eg a guarantee), the group

may not have discretion over distributions or redemption. Although the

subsidiary may appropriately classify the instrument without regard to

these additional terms in its individual financial statements, the effect

of other agreements between members of the group and the holders of

the instrument is considered in order to ensure that consolidated

financial statements reflect the contracts and transactions entered into

by the group as a whole. To the extent that there is such an obligation

or settlement provision, the instrument (or the component of it that is

subject to the obligation) is classified as a financial liability in

consolidated financial statements.

AG29A Some types of instruments that impose a contractual obligation on the

entity are classified as equity instruments in accordance with

paragraphs 16A and 16B or paragraphs 16C and 16D. Classification in

accordance with those paragraphs is an exception to the principles

otherwise applied in this Standard to the classification of an

instrument. This exception is not extended to the classification of non-

controlling interests in the consolidated financial statements.

Therefore, instruments classified as equity instruments in accordance

with either paragraphs 16A and 16B or paragraphs 16C and 16D in the

separate or individual financial statements that are non-controlling

interests are classified as liabilities in the consolidated financial

statements of the group.


Compound financial instruments (paragraphs 28–32)

AG30 Paragraph 28 applies only to issuers of non-derivative compound

financial instruments. Paragraph 28 does not deal with compound

financial instruments from the perspective of holders. Ind AS 109 deals

with the classification and measurement of financial assets that are

compound financial instruments from the holder’s perspective.

AG31 A common form of compound financial instrument is a debt instrument

with an embedded conversion option, such as a bond convertible into

ordinary shares of the issuer, and without any other embedded

derivative features. Paragraph 28 requires the issuer of such a

financial instrument to present the liability component and the equity

component separately in the balance sheet, as follows:

(a) The issuer’s obligation to make scheduled payments of interest

and principal is a financial liability that exists as long as the

instrument is not converted. On initial recognition, the fair value

of the liability component is the present value of the

contractually determined stream of future cash flows discounted

at the rate of interest applied at that time by the market to

instruments of comparable credit status and providing

substantially the same cash flows, on the same terms, but

without the conversion option.

(b) The equity instrument is an embedded option to convert the

liability into equity of the issuer. This option has value on initial

recognition even when it is out of the money.

AG32 On conversion of a convertible instrument at maturity, the entity

derecognises the liability component and recognises it as equity. The

original equity component remains as equity (although it may be

transferred from one line item within equity to another). There is no

gain or loss on conversion at maturity.

AG33 When an entity extinguishes a convertible instrument before maturity

through an early redemption or repurchase in which the original

conversion privileges are unchanged, the entity allocates the

consideration paid and any transaction costs for the repurchase or

redemption to the liability and equity components of the instrument at

the date of the transaction. The method used in allocating the

consideration paid and transaction costs to the separate components

is consistent with that used in the original allocation to the separate


components of the proceeds received by the entity when the

convertible instrument was issued, in accordance with paragraphs 28–

32.

AG34 Once the allocation of the consideration is made, any resulting gain or

loss is treated in accordance with accounting principles appl icable to

the related component, as follows:

(a) the amount of gain or loss relating to the liability component is

recognised in profit or loss; and

(b) the amount of consideration relating to the equity component is

recognised in equity.

AG35 An entity may amend the terms of a convertible instrument to induce

early conversion, for example by offering a more favourable

conversion ratio or paying other additional consideration in the event

of conversion before a specified date. The difference, at the date the

terms are amended, between the fair value of the consideration the

holder receives on conversion of the instrument under the revised

terms and the fair value of the consideration the holder would have

received under the original terms is recognised as a loss in profit or

loss.

Treasury shares (paragraphs 33 and 34)

AG36 An entity’s own equity instruments are not recognised as a financial

asset regardless of the reason for which they are reacquired.

Paragraph 33 requires an entity that reacquires its own equity

instruments to deduct those equity instruments from equity. However,

when an entity holds its own equity on behalf of others, eg a financial

institution holding its own equity on behalf of a client, there is an

agency relationship and as a result those holdings are not included in

the entity’s balance sheet.

Interest, dividends, losses and gains (paragraphs 35–41)

AG37 The following example illustrates the application of paragraph 35 to a

compound financial instrument. Assume that a non-cumulative

preference share is mandatorily redeemable for cash in five years, but

that dividends are payable at the discretion of the entity before the

redemption date. Such an instrument is a compound financial

instrument, with the liability component being the present value of the


redemption amount. The unwinding of the discount on this component

is recognised in profit or loss and classified as interest expense.

Any dividends paid relate to the equity component and, accordingly,

are recognised as a distribution of profit or loss. A similar treatment

would apply if the redemption was not mandatory but at the option of

the holder, or if the share was mandatorily convertible into a variable

number of ordinary shares calculated to equal a fixed amount or an

amount based on changes in an underlying variable (eg commodity).

However, if any unpaid dividends are added to the redemption amount,

the entire instrument is a liability. In such a case, any dividends are

classified as interest expense.

Offsetting a financial asset and a financial liability (paragraphs 42–50)

AG38 [Refer Appendix 1]

Criterion that an entity ‘currently has a legally enforceable right to

set-off the recognised amounts’ (paragraph 42(a))

AG38A A right of set-off may be currently available or it may be contingent on

a future event (for example, the right may be triggered or exercisable

only on the occurrence of some future event, such as the default,

insolvency or bankruptcy of one of the counterparties). Even if the

right of set-off is not contingent on a future event, it may only be

legally enforceable in the normal course of business, or in the event

of default, or in the event of insolvency or bankruptcy, of one or all of

the counterparties.

AG38B To meet the criterion in paragraph 42(a), an entity must currently

have a legally enforceable right of set-off. This means that the right of

set-off:

(a) must not be contingent on a future event; and

(b) must be legally enforceable in all of the following

circumstances:

(i) the normal course of business;

(ii) the event of default; and

(iii) the event of insolvency or bankruptcy of the entity and

all of the counterparties.


AG38C The nature and extent of the right of set-off, including any conditions

attached to its exercise and whether it would remain in the event of

default or insolvency or bankruptcy, may vary from one legal

jurisdiction to another. Consequently, it cannot be assumed that the

right of set-off is automatically available outside of the normal course

of business. For example, the bankruptcy or insolvency laws of a

jurisdiction may prohibit, or restrict, the right of set-off in the event of

bankruptcy or insolvency in some circumstances.

AG38D The laws applicable to the relationships between the parties (for

example, contractual provisions, the laws governing the contract, or

the default, insolvency or bankruptcy laws applicable to the parties)

need to be considered to ascertain whether the right of set-off is

enforceable in the normal course of business, in an event of default,

and in the event of insolvency or bankruptcy, of the entity and all of

the counterparties (as specified in paragraph AG38B (b)).

Criterion that an entity ‘intends either to settle on a net basis, or

to realise the asset and settle the liability simultaneously’

(paragraph 42(b))

AG38E To meet the criterion in paragraph 42(b) an entity must intend either

to settle on a net basis or to realise the asset and settle the liability

simultaneously. Although the entity may have a right to settle net, it

may still realise the asset and settle the liability separately.

AG38F If an entity can settle amounts in a manner such that the outcome is,

in effect, equivalent to net settlement, the entity will meet the net

settlement criterion in paragraph 42(b). This will occur if, and only if,

the gross settlement mechanism has features that eliminate or result

in insignificant credit and liquidity risk, and that will process

receivables and payables in a single settlement process or cycle. For

example, a gross settlement system that has all of the following

characteristics would meet the net settlement criterion in paragraph

42(b):

(a) financial assets and financial liabilities eligible for set-off are

submitted at the same point in time for processing;

(b) once the financial assets and financial liabilities are submitted

for processing, the parties are committed to fulfil l the

settlement obligation;


(c) there is no potential for the cash flows arising from the assets

and liabilities to change once they have been submitted for

processing (unless the processing fails—see (d) below);

(d) assets and liabilities that are collateralised with securities will

be settled on a securities transfer or similar system (for

example, delivery versus payment), so that if the transfer of

securities fails, the processing of the related receivable or

payable for which the securities are collateral will also fail (and

vice versa);

(e) any transactions that fail, as outlined in (d), will be re-entered

for processing until they are settled;

(f) settlement is carried out through the same settlement

institution (for example, a settlement bank, a central bank or a

central securities depository); and

(g) an intraday credit facility is in place that will provide sufficient

overdraft amounts to enable the processing of payments at the

settlement date for each of the parties, and it is virtually certain

that the intraday credit facility will be honoured if called upon.

AG39 The Standard does not provide special treatment for so-called

‘synthetic instruments’, which are groups of separate financial

instruments acquired and held to emulate the characteristics of

another instrument. For example, a floating rate long-term debt

combined with an interest rate swap that involves receiving floating

payments and making fixed payments synthesises a fixed rate long-

term debt. Each of the individual financial instruments that together

constitute a ‘synthetic instrument’ represents a contractual right or

obligation with its own terms and conditions and each may be

transferred or settled separately. Each financial instrument is

exposed to risks that may differ from the risks to which other financial

instruments are exposed. Accordingly, when one financial instrument

in a ‘synthetic instrument’ is an asset and another is a liability, they

are not offset and presented in an entity’s balance sheet on a net

basis unless they meet the criteria for offsetting in paragraph 42.


Appendix B

References to matters contained in other Indian Accounting Standards

This Appendix is an integral part of the Ind AS.

This appendix lists the appendices which are part of other Indian Accounting

Standards and makes reference to Ind AS 32, Financial Instruments:

Presentation.

1. 6 Appendix D, Service Concession Arrangements contained in Ind AS

115, Revenue from Contracts with Customers.

2. Appendix D, Extinguishing Financial Liabilities with Equity Instruments,

contained in Ind AS 109, Financial Instruments


substituted vide Notification No. G.S.R. 310(E) dated 28th March, 2018.


Appendix 1

Note: This Appendix is not a part of the Indian Accounting Standard. The

purpose of this Appendix is only to bring out the major differences, if any, between

Indian Accounting Standard (Ind AS) 32 and the corresponding International

Accounting Standard (IAS) 32, Financial Instruments; Presentation, issued by the

International Accounting Standards Board.

Comparison with IAS 32, Financial Instruments: Presentation

1. As an exception to the definition of ‘financial liability’ in paragraph 11

(b) (ii), Ind AS 32 considers the equity conversion option embedded in

a convertible bond denominated in foreign currency to acquire a fixed

number of entity’s own equity instruments is considered an equity

instrument if the exercise price is fixed in any currency. This exception

is not provided in IAS 32.

2. 7Paragraphs 96-97P and 97R related to Transitional Provisions and

Effective date given in IAS 32 have not been given in Ind AS 32, since

all transitional provisions related to Ind ASs, wherever considered

appropriate have been included in Ind AS 101, First-time Adoption of

Indian Accounting Standards corresponding to IFRS 1, First-time

Adoption of International Financial Reporting Standards and

paragraphs related to Effective date are not relevant in Indian context.

However, in order to maintain consistency with paragraph numbers of

IAS 32, these paragraph numbers are retained in Ind AS 32.

3. Different terminology is used, as used in existing laws e.g., the term

‘balance sheet’ is used instead of ‘Statement of financial position’ and

‘Statement of profit and loss’ is used instead of ‘Statement of

comprehensive income’.

4. Requirements regarding presentation of dividends classified as an

expense in the separate income statement, where separate income

statement is presented, have been deleted. This change is

consequential to the removal of option regarding two statement


substituted vide Notification No. G.S.R. 273(E) dated 30th March, 2019. .


approach in Ind AS 1. Ind AS 1 requires that the components of profit

or loss and components of other comprehensive income shall be

presented as a part of the statement of profit and loss.

5. The following paragraph numbers appear as ‘Deleted’ in IAS 32. In

order to maintain consistency with paragraph numbers of IAS 32, the

paragraph numbers are retained in Ind AS 32:

(i) paragraph 1

(ii) paragraph 4(c)

(iii) paragraphs 5-7

(iv) paragraphs 51-95

(v) AG24 of Appendix A

(vi) AG38 of Appendix A

6. Following references to Illustrative Examples which are not integral

part of IAS 32 have not been included in Ind AS 32:

(i) Reference to Example 7 of Illustrative Examples in paragraph

18(b)

(ii) Reference to Example 8 of Illustrative Example in paragraph

18(b)

(iii) Reference to Example 9-12 of Illustrative Example given in

heading above paragraph 28

indian accounting standard 32 financial instruments

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